As mortgage rates rise, some homebuyers are choosing adjustable-rate loans

Homeownership is out of reach for many people.

Home prices remain high. Last week, mortgage rates reached their highest point since June 2025 when 30-year fixed-rate mortgages hit 6.71%.

That’s why a growing number of homebuyers are opting for adjustable-rate mortgages — loans with an interest rate that changes after five, seven, or 10 years to whatever the new market rate is. It’s a cheaper option for now, but it’s riskier in the long run.

Adjustable-rate mortgages accounted for 8.5% of all mortgages last week, which is the highest it has been since June.

People might opt for these mortgages because they’re betting that interest rates will fall once the mortgage rate adjusts. But that doesn’t seem likely.

“If you just look at the prediction markets, rates are supposed to be going up,” said Mariya Letdin, a real estate professor at Florida State University.

Instead, Letdin said borrowers might be opting to save money now.

“They just can’t qualify for a mortgage if they use the 30-year fixed rate today, because rates are so expensive,” she said.

And the classic fixed mortgage is usually more expensive than the adjustable one, according to Joel Berner, senior economist at Realtor.com.

“What you’re paying for in a 30-year fixed is the certainty of having a single payment over the whole life of the loan, so you pay a little bit more for that,” Berner said.

About $200 per month more, based on the average home price. While the fixed mortgage is hovering at 6.7%, the adjustable-rate mortgage is in the high 5% range.

“Right now, the spread actually between the fixed and the adjustable rate is pretty high, so the adjustable rate is especially attractive,” Berner said.

And for a certain demographic, it’s not a bad bet, according to Mark Eppli, a real estate professor at the University of Wisconsin-Madison School of Business.

“[Especially for] someone who is going to maybe move or almost certainly refinance in two or three years,” Eppli said.

Because then that person can get out of the loan before the interest rate can jump up.

As for the cash-strapped borrower who’s in it for the long haul — yes, there are more of them going for this riskier option, but, “I’m not super concerned about sort of a wave of defaults happening,” said Cameron LaPoint, a finance professor at Yale University.

LaPoint said that for one thing, it used to be way easier for riskier borrowers to qualify for these loans.

“Post-2008, it’s a very different story,” he said.

And yes, these loans are getting more popular, but everything is relative. They make up 8 or 9% of mortgages today. In the mid-2000s, it was up over 30%.